What is Yearn Finance? The Defi Gateway Explained
DeFi’s launch opened a whole universe of opportunities, especially for high-risk takers. Staking rewards, interests, lending, DEX incomes, and trading yields are among the many options for profiting investors. Investors look for platforms with the highest yields and minimum risks when making investment moves. Looking for the best protocol is tussling; it involves deep research and expert insight into many platforms. The research struggle led to the rise of an income optimizing system, Yearn Finance. This guide looks into the frenzy that is YFI, its services, features, and benefits.
Understanding Yearn Finance
Yearn Finance is a platform introducing a set of protocols on the Ethereum chain to help investors maximize incomes using DeFi services like lending and trading. It works like an Amazon for DeFi services, offering a one-stop solution for most interest-bearing crypto products.
Andre Cronje, the platform’s creator, got the idea to launch this platform after noticing the need for the service himself. He thought it was pretty complex for average investors in the DeFi ecosystem to get applications with the best interest rates. It would require committing a lot of time and other resources to secure the services of good interest-bearing products. Hence, Andre decided to develop his tool to solve this problem for all investors.
Therefore, the whole idea behind Yearn Finance’s development was helping to solve the need. Yearn aggregates yields in several platforms like Aave, Compound, dYdX, Balancer, and Curve. This platform autonomously moves funds around the protocols to get the most optimal earnings from interest rates.
How Does Yearn Finance Work?
At the very nucleus of this platform is the idea of synergizing many different DeFi protocols into one highly intuitive but user-friendly interface. This tool requires users to pool their crypto assets to Yearn Vaults and earn yields.
Yearn leverages well-coded smart contracts deployed across numerous DeFi protocols to tap into different investing strategies. The algorithmic systems reduce investors’ tasks of moving from one platform to another, scouring for best interests. Like in most other DeFi smart contracts, Yearn charges some fee for every service they offer.
Once they receive your funds, the contracts combine many income earning mechanisms to ensure investors get profits from;
- Trading fees
- Interest in lending pools
- DEX related incomes
- Staking rewards
As an investor, your task is as simple as depositing your cryptos and starting to earn.
Features and Services Offered by Yearn Finance
Yearn combines many tools and features in the Defi landscape to optimize its services. Yes, it is known fundamentally as a yield aggregator, and to aggregate yield, Yearn uses the following tools and services;
Yearn Vaults (yVaults)
Using the shortened name yVaults, Yearn Vaults are pools of funds that leverage a specific strategy to minimize risk and maximize yield on deposited assets. Each of these pools (yVaults) uses at least one, but in some cases, more strategies. All investors’ earnings in Yearn come from the pool strategies. Yearn offers passive investment options with no need for technical know-how. Currently, investors are using a V2 of Yearn vaults which at its core has the following characteristics;
- The token you decide to deposit in these vaults is the token you will earn. It’s the classic case of “you reap what you sow.” If you deposit ETH, you will earn ETH, which will be compounded autonomously in the yVaults.
- The yVaults do not charge any deposit or withdrawal fees to the investors. It’s better than many other aggregators.
- yVaults can run many strategies concurrently. However, the vault has the freedom to change the allocation of capital in different strategies whenever necessary.
- Tokens in yVaults take the ERC-20 standard. Therefore, the many wallets like Metamask that support ERC-20 tokens can work with this platform. Hence, you can use the wallets and DEXes in case of any transfers.
Any tokens adopted in yVauls autonomously adopt a ‘yv’ prefix. For instance, Ethereum in yVaults is yvETH, USDC in yVaults is yvUSDC, and DAI in Dai vault is yvDAI.
Yearn Earn V2
The second feature coming in the lending aggregator is ‘earn.’ The whole idea of this platform was to optimize earnings. Yearn Earn optimizes the interest accrual process in multiple lending platforms to get the highest lending rates. Earn autonomously shifts deposits in the ecosystem across many platforms like Aave, dYdX, and Compound.
It’s in the investors’ task to select assets, deposit, and immediately start enjoying accrued interest rates. This interest is the most optimal after the aggregation process.
Yearn Zap is a feature created to bundle multiple trades in a single click. Zap allows Yearn to save on labor and gas-related fees by creating such trade bundles.
Due to the power of Zap, investors can go into or out of Curve Finance liquidity pools. Remember, Curve finance is a stablecoin DEX.
APY is another of the most relevant features hosted within the Yearn.Finance ecosystem. It’s a data table displaying the prevailing interest rates on different lending protocols aggregated in the network. Remember, the whole idea of Yearn is optimizing your interest. Hence, knowing APYs across multiple lending protocols can help attain that.
What is the YFI Token?
Soon after its inception, Yearn Finance introduced a native token known popularly in the markets as YFI. YFI captured the attention of many investors.
When DeFi tokens launch, project founders often set some coins aside for themselves. Investors could interpret it as greedy. However, since its launch, Yearn distributed YFI to Investors with deposits in some key liquidity pools benefiting the project.
When launching, Yearn released a maximum of only 30k YFI tokens in the markets. Afterward, the network added another 6666 coins. Currently, Coinmarketcap shows that the maximum and total supply of YFI tokens is 36666. However, according to the network, investors can pass a vote to increase the maximum supply by minting more coins.
Now, what is the primary role of this coin? Generally, YFI is known as a governance token. Hence, holders can use YFI to participate in votes and make changes to the ecosystem. Holders need to stake the YFI tokens and cast the votes. Once you cast your vote, the network autonomously locks your tokens for three days. However, you can earn some fees by participating in the decision-making process.
Yearn Finance Governance
As mentioned above, Yearn decentralized its governance to YFI holders. One token, one vote. Hence, your voting power depends on YFI held.
If there are any new proposals or significant changes, at least 33% of YFI holders must agree. A veto can occur if 25%+ reject the changes. The voting period runs for three days, after which everything closes down, and a proposal becomes relevant. For a proposal to be fully passed and take the implementation route, over 50% of token holders must concur.
The Pros and Cons of Yearn Finance
Of course, after exploring the entire Yearn Defi gateway, investors need to know the benefits and cons of using this platform. So, what are the benefits associated with this Defi gateway?
As discussed earlier, the network compares interest yields across different lending protocols. Every time an investor will enjoy the best interest yield within the lending market of a particular crypto.
The network offers a high degree of security for investors and their funds. By decentralizing governance to YFI holders, the network remains self-governed. Developers help maintain the platform, but the community monitors the security. It’s vital to remember that Yearn Finance was hacked in the past. However, reports show that the network repaid investors.
High Value Locked
A big chunk of the global crypto investment space largely trusts the platform. The network has close to $5 billion in value locked.
Cons of Yearn Finance
While the network offers many benefits for investors, it also has downsides. Among them include;
- Other competitors of Yearn finance offer mintable tokens with good scarcity
- Any negatives associated with Yearn can be a deal breaker for many because of the many alternatives available.
- Protocol reached maximum coin supply.
YFI Token Investment Prospects
The investment prospect of the YFI token is one of the main questions many investors would ask. Many want to know if investing in this token can generate good rewards. Well, at launch, the coin was trading at just about $30. Two months later, YFI surged to nearly $40k.
At the time of writing, YFI was trading at $11.5k. Analysts predicted that in the future, YFI the coin will gain massive value hitting $35k in 2030. However, other analysts predict super value gains, with YFI hitting over $200k in 2030.
What is Decentralized Finance?
Decentralized finance refers to the blockchain technology enabling us to create decentralized financial systems through smart contracts. This means we could use cryptocurrencies such as Bitcoin or Ethereum instead of fiat currency for payments. There are also other benefits like reducing transaction fees and avoiding volatility risk. So now, let me tell you how Decentralized Finances work.
Is Yearn Finance worth investing in?
Yes. YFI showcased a high potential when it first dawned on the crypto market and outperformed many coins, closing in on Ethereum. Analysts expect YFI’s price to grow at the end of 2022.
What blockchain does Yearn Finance run on?
Yearn runs off of Ethereum Blockchain technology. Yearn has been designed for financial institutions looking to leverage smart contracts to automate processes from KYC/AML checks to cross-border payments.